Challenges to specialty pharmacy profits will need to be overcome for smaller pharmacies to survive.
What will happen to the specialty pharmacy landscape if profitability shrinks? Most specialty pharmacies’ profits are being squeezed by pharmacy benefit managers (PBM) and drug wholesalers.
How long can specialty pharmacies continue to absorb this lower profit margin before it is time to exit? Specialty pharmacies typically have much higher fixed and variable costs over their retail colleagues, so at what point do costs exceed profit?
The attractiveness of the specialty pharmacy industry has historically been due to the higher revenues; however, change is on the horizon. The competitive nature within the industry is starting to heat up, and it does not look like it is going to slow down anytime soon.
The number of URAC-accredited specialty pharmacies is on the rise, and biosimilars are on the horizon. This could lead to increased bids for contracts and decreased revenue from biosimilars.
This environment could increase mergers and acquisitions as profitability decreases. Currently, the largest players within the industry control most of the market share, as the top 5 specialty pharmacies account for approximately 70% of the total industry revenue.
So, what is to become of the other 30% as competition increases and revenue decreases? The new entrants will more than likely close-up shop, while the established specialty pharmacies will be acquired.
Alternatively, will the specialty industry take a different path? Rather than continue down the traditional economies of scale model, can specialty pharmacies think outside of the box to ensure long term profitability and survival?
Look at our colleagues in retail pharmacy, their profitability is decreasing every year, and they had to develop additional revenue streams to stay in business. Can the specialty industry develop additional revenue streams, and if not, who will survive?
It is safe to assume the PBM-owned specialty pharmacies will be all right, but what about the small to medium sized specialty pharmacies? The pharmacies dedicated to orphan and ultra-orphan therapies will survive due to the complexity of their care.
Specialty pharmacies that are part of a larger organization, such as grocery stores, might start outsourcing their clinical services to larger entities to reduce costs. The entire industry might be compressed to just the large specialty pharmacies and those dedicated to orphan diseases.
It is hard to imagine at this point and time, but think about what drug treatment will look like in 20 years. They are getting more sophisticated every year, and curative treatments will continue to become more prevalent.
What impact will this have on the specialty landscape? If there are fewer patients, due to curative therapies, decreased revenue, and decreased profit margin, how attractive does the market sound? Specialty pharmacies must think outside of the box to find outside sources of income, or else consolidation within the industry is inevitable.
The purpose of this article is not to paint a "doom and gloom" picture; it is just to open the idea that we may only see a handful of specialty pharmacies in the future.
Who will be ready and waiting to grasp some of the revenue and profit margin that is left for specialty claims? Retail.
There will more than likely be a movement of specialty prescriptions back to retail. Think about it, if specialty therapies continue to get more patient-friendly regarding dosing and side effects, why does a specialty pharmacy need to be involved at all? Can't retail handle these therapies moving forward?
Specialty at retail is a segment of the market that is starting to gain traction, with CVS's Specialty Connect being a perfect example. Twenty years ago, HIV treatments were complex, had significant side effects, and many times the patient did not survive.
HIV had to be serviced by a specialty pharmacy. HIV treatment today can be as simple as a single tablet regimen once a day. Does specialty need to be involved with HIV therapies as they continue to get more advanced?
Retail pharmacies with clinical programs can facilitate this treatment, so it can be assumed that HIV will be off the specialty book of business. What else will be eliminated?
Specialty treatments of the future will be so advanced, it is even hard to fathom what they will look like or how they will be delivered. Therapies could be as simple as a one-time injection at the prescriber's office.
If that is the case, how does specialty survive in that environment? Many of these changes will take years or decades to come to fruition, but at some point, this will be a part of our world.
Will the industry be prepared?
About the Author
Anthony Mazzarese is a graduate of The University of Pittsburgh School of Pharmacy. He received his MSPBA, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines, from the University of Pittsburgh in 2016. He is the Pharmacist-in-Charge at Giant Eagle Specialty Pharmacy. His practice is focused on improving medication compliance and overall well-being in the areas of HIV, auto-immune disorders, oncology and organ transplantation.